Marshall notes that Amazon last month said that S3 now stores over 1 trillion “objects,” where objects are assumed to be files of some sort. That follows explosive growth of 190% in storage volume last year, observes Marshall.

His back-of-the-envelope calculation has Amazon now storing about 900 petabytes of data and perhaps making as much as $800 million per year on S3.

That’s tiny compared to the $50 billion per year spent on enterprise storage technology, Marshall writes.

But Amazon’s S3 could siphon off some of the $23 billion being spent annually on what is commonly referred to as “Tier 2 storage“, which includes slower speed drives, because it can be cheaper than the products the storage vendors sell:

Common reference architectures have consisted of ~20% higher-performance Tier 1 storage (e.g., 10K/15K Fibre Channel or high-end SAS drives, etc.) and ~80% capacity-oriented Tier 2 storage (e.g., low- end SAS drives or SATA disk arrays). Flash is becoming widely utilized in Tier-1 storage as a cache (e.g., ~2-5% of Tier 1 storage) and a new ultra high performance Tier 0 is also emerging consisting of flash-based appliances (e.g., Violin Memory, Pure Storage, EMC XtremIO, etc.). We estimate a ~$2/GB cost for Tier 2 storage, ~$5-10/GB for Tier-1 and ~$20-50/GB for Tier 0 […] While service levels remain a key concern (e.g., recent AMZN outages caused by east coast storms impacting NFLX, Instagram, Pinterest, etc.), we believe the scalability, capex/opex savings and ease-of-management from cloud storage could outweigh those concerns. At ~$1/GB per year with frequent price drops and payment based only on actual usage, we see cloud storage as an attractive alternative for Tier 2 storage which costs ~$2/GB (plus ongoing operational/maintenance costs which can often be 2x upfront capex costs). If one third of Tier 2 storage were to eventually migrate to public cloud vendors, this could potentially be a ~$8bil headwind to the enterprise storage TAM long-term. While much of this spending would be offset from purchases by cloud operators (e.g., RAX, service providers, etc.), we would expect some share loss and pricing pressure from ‘home-grown’ commodity solutions in this scenario (e.g., AMZN, GOOG, etc.).

Tier 3, in case you were wondering, is the designation for off-line or near-line storage, such as tape, which is another area ripe for potential cloud incursion, Marshall thinks.

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.